Settlement Requires Musk to Step Down as Tesla’s
Chairman; Tesla to Appoint Additional Independent Directors; Tesla and Musk
Agree to Pay $40 million in Penalties

The Securities
and Exchange Commission announced today that Elon Musk, CEO and Chairman of Silicon
Valley-based Tesla, Inc., has agreed to settle the securities fraud charge
brought by the SEC against him last week. The SEC also today charged
Tesla with failing to have required disclosure controls and procedures relating
to Musk’s tweets, a charge that Tesla has agreed to settle.

The
settlements, which are subject to court approval, will result in comprehensive
corporate governance and other reforms at Tesla—including Musk’s removal as
Chairman of the Tesla board—and the payment by Musk and Tesla of financial
penalties.

According to
the SEC’s complaint against him, Musk tweeted on August 7, 2018 that he could
take Tesla private at $420 per share — a substantial premium to its trading
price at the time — that funding for the transaction had been secured, and that
the only remaining uncertainty was a shareholder vote.

The SEC’s
complaint alleged that, in truth, Musk knew that the potential transaction was
uncertain and subject to numerous contingencies. Musk had not discussed
specific deal terms, including price, with any potential financing partners,
and his statements about the possible transaction lacked an adequate basis in
fact. According to the SEC’s complaint, Musk’s misleading tweets caused
Tesla’s stock price to jump by over six percent on August 7, and led to
significant market disruption.

According to
the SEC’s complaint against Tesla, despite notifying the market in 2013 that it
intended to use Musk’s Twitter account as a means of announcing material
information about Tesla and encouraging investors to review Musk’s tweets,
Tesla had no disclosure controls or procedures in place to determine whether
Musk’s tweets contained information required to be disclosed in Tesla’s SEC
filings. Nor did it have sufficient processes in place to that Musk’s
tweets were accurate or complete.

Musk and Tesla
have agreed to settle the charges against them without admitting or denying the
SEC’s allegations. Among other relief, the settlements require that:

Musk will step down as Tesla’s Chairman and be replaced by an
independent Chairman. Musk will be ineligible to be re-elected Chairman
for three years;

Tesla will appoint a total of two new independent directors to its
board;

Tesla will establish a new committee of independent directors and put in
place additional controls and procedures to oversee Musk’s communications;

Musk and Tesla will each pay a separate $20 million penalty. The
$40 million in penalties will be distributed to harmed investors under a
court-approved process.

“The total
package of remedies and relief announced today are specifically designed to
address the misconduct at issue by strengthening Tesla’s corporate governance
and oversight in order to protect investors,” said Stephanie Avakian,
Co-Director of the SEC’s Enforcement Division.

“As a result of
the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board
will adopt important reforms —including an obligation to oversee Musk’s
communications with investors—and both will pay financial penalties,” added
Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The
resolution is intended to prevent further market disruption and harm to Tesla’s
shareholders.”

The SEC’s investigation
was conducted by Walker Newell, Brent Smyth, and Barrett Atwood and supervised
by Steven Buchholz, Erin Schneider, and Jina Choi in the San Francisco Regional
Office and Cheryl Crumpton in the SEC’s Home Office.